How VAT rules are changing for Low Value Goods

There is a certain kind of tax relief that is intended for import VAT and it is known as the Low-Value Consignment Relief (LVCR). With the implementation of LVCR, UK businesses are not obliged to pay for import VAT if the value of the shipment is less than £15.

Starting on January 1, 2021, some changes were implemented on the VAT rules on shipments have changed most especially for those that has a value of less than £135.

Low-Value Consignment Relief (LVCR) has been reclusive.

Why the rules have changed?

Since the Brexit transition period is over, the UK is not dependent with the EU VAT rules anymore. As a result, there will be some modifications on the processes of how businesses charge, collect, and pay VAT on goods and services which are moved across the UK border.

One of these modifications are the VAT rules applied for imports with low value entering into the UK. Now, the threshold for imports with low value has been changed to £135.

Who charges VAT on imports with low value?

When it comes to the rules for the collection of VAT on shipments with low value that enter into the UK, it will all depend on who the customer is. Is it a regular customer or a business?

• Business to Consumer (B2C) – this is where businesses are selling their goods or services directly to regular customers.
• Business to Business (B2B) – this is where businesses are selling their goods or services to other businesses.

B2C low value imports by end customers

B2C imports refers to end customers purchasing goods from abroad for their own personal use. Based on the rules for imports with low value, these customers are required to pay VAT at the point of sale in case the value of the shipment falls below £135.

Point of sale refers to the exact point wherein sale is made. In other words, the company or the seller will be the one liable for charging UK VAT on the sale.

Should the company or the seller register for UK VAT?

Absolutely, due to the changes implemented, sellers as well as their postal service are required to register for UK VAT so they will be able to charge it to their customers.

It is important that the customs invoice should indicate that the VAT is fully paid before the goods can enter the UK. Unfortunately, because of this additional work some sellers are no longer interested in shipping to UK customers.

What if the value of the shipment exceeds £135?

If the value of the shipment is more than £135 then UK customers will not be required to pay any VAT at the point-of-sale. Instead, customers will be required to pay the usual import VAT and duty once their goods arrived at the border.

The company or the seller does not have to register for UK VAT, and they don’t have to indicate any VAT on their customs invoice. However, it does not imply that their customs invoice must indicate that the value of the shipment is more than the £135 threshold. When it comes to selling through an online marketplace or selling to UK businesses, different rules apply.

B2B low value imports by UK businesses

A B2B sale occurs when the seller is selling goods to a UK business. In this case, the seller is no longer required to charge any VAT on the sale.

This is applicable provided that the following points are satisfied:

• The buyer should be a UK business.
• The seller of the goods should be another business located overseas.
• Your business imports the goods into the UK.
• The value of the shipment should be less than £135.

How to pay the VAT?

It is quite simple if you are VAT registered, since all you have to do is charge is reversely on your VAT return. On the other hand, if you are not VAT registered, then you should pay the import VAT at the border.

What about the VAT on imports sold at online marketplaces?

If you are a UK customer and you purchase your goods from abroad through an online marketplace, such as Amazon or Etsy, then you are required to pay VAT at the point-of-sale. In this situation, it will be the marketplace which needs to register for UK VAT, rather than the seller using the platform. This is applicable whether the goods are sold to a consumer for personal use (B2C) or to a business (B2B).

Most online marketplaces allow their sellers to print customs invoices for goods that are shipped overseas. This will prove that the customer has already paid the VAT. At the same time, this can prevent any delays on the shipments once they are at the border.

Read More: VAT Guide for Small Businesses